What is it and do I have to pay?

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When you’re looking for a loan, you’re probably wondering how much it will cost to get your loan, the fees involved, and the impact of additional costs on loan affordability. As you read this advice and information, remember that every loan is different and you should read all contracts before proceeding. It’s comforting to know you have options — you’re not stuck with big banks that can complicate the loan process.

What are loan origination fees?

Loan origination fees are costs added to a loan that pay for additional services provided by the lender. Generally, assembly costs include:

  • Background and credit check
  • Processing
  • Controls
  • Ratings
  • Closing costs
  • Fees for online or in-person service

Remember, however, that the Federal Trade Commission has warned borrowers that lenders may try to scam consumers by asking them to pay fees up front. This feature is not how loans work. Typically, the fees are built into the loan, or you can use a payment plan to pay them off after the loan is approved or closed.

Can you avoid loan origination fees?

Sometimes lenders advertise that they don’t charge origination fees. Some lenders may add these fees to the interest rate, which increases the overall interest you pay. Sometimes you can ask the lender to waive the fees or you can restructure the loan to remove these fees and avoid certain costs.

Keep in mind, however, that origination fees are often not that expensive relative to the life of the loan.

Consider a personal loan of $50,000 over 10 years. Over the life of the loan, a total of, say, $400 in origination fees is not that expensive. However, a $5,000 set-up fee would seem outrageous. Use your best judgment when speaking with a lender. If you look at mortgage origination fees, they pale in comparison to the total loan value.

Whether you build the fee into the loan, pay it with your closing costs, or avoid it altogether, you need to know all the fees up front. If caught at the last minute, you should contact the Federal Trade Commission, ask an attorney, or speak directly with your loan officer.

Questions to ask your lender about loan origination fees

If you’re not sure what to do or where to start, ask your lender questions such as:

  • Are there assembly fees?
  • What are my payment options for setup fees?
  • Does my APR include my assembly fees?
  • Are any other fees involved?
  • How can I reduce my origination fees?

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Frequently Asked Questions

What are typical loan origination fees?

1

What are typical loan origination fees?

demand

Patton Hunnicutt

1

Origination fees range on average from 0.5% to 1.5% of the total loan value.

Answer link

responded

Benzinga

How do you negotiate origination fees?

1

How do you negotiate origination fees?

demand

Patton Hunnicutt

1

Ask your lender if you can waive any aspect of the fee structure, get a discount, or restructure the loan to reduce costs.

Answer link

responded

Benzinga

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